The Canadian equity markets introduced TFSA (Tax-Free Saving Account) in 2009 to encourage Canadians to save more. It allows citizens above 18 years to earn tax-free returns upon a specified amount called contribution room. For this year, the CRA (Canadian Revenue Agency) has fixed the contribution room at $7,000, while the cumulative value stands at $95,000.
The equity markets have been volatile this year. The indication from the Federal Reserve that it is not in a hurry to cut interest rates with inflation remaining on the higher side has made investors nervous. Besides, the ongoing Isreal-Palestine war and the Red Sea crisis have also weighed on the equity markets. Given the volatile environment, investors should be careful while investing through TFSA, as the decline in stock prices could reduce their contribution room.
Considering the uncertain outlook, here are three top Canadian stocks you can add to your TFSA.
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Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) is one of my top picks in this uncertain outlook due to its asset-light business model, stable cash flows, and high dividend yield. It operates Pizza Pizza and Pizza 73 brand restaurants through franchisees, collecting royalties based on their sales. So, its financials are immune to commodity and wage inflation. Meanwhile, the increased menu prices due to higher expenses could increase its royalty income in this inflationary environment. Meanwhile, the company raised its monthly dividend three times last year.
PZA intends to distribute all the available cash to its shareholders. However, with the seasonal variation inherent to the restaurant industry, its payout ratio currently stands at 97%. It now pays a monthly dividend of $0.0775/share, with its forward yield at 6.49%. Further, the company has added 45 restaurants to its royalty pool, which could increase its financials. Further, its continued menu innovations, promotional activities, and renovation of old restaurants could drive its same-store sales in the coming quarters. Considering all these factors, PZA would be an excellent addition to your TFSA.
Fortis
Second on my list is Fortis (TSX: FTS), which operates 10 regulated utility assets across Canada, the United States, and the Caribbean. Supported by its low-risk utility assets, the company has delivered an average total shareholders’ return of over 10% for the last 20 years. Also, the company has raised its dividend for the previous 50 consecutive years, with its forward yield currently at 4.56%.
Meanwhile, the company has adopted a $25 billion capital plan, which it intends to invest over the five years from 2024 to 2028. These investments could grow its rate base at an annualized rate of 6.3%, boosting its financials. The company is confident of raising its dividend by 4-6% yearly until 2028 and currently trades at 17.1 times its projected earnings for the next four quarters, making it an attractive buy.
Nuvei
Despite the uncertain broader market environment, I am picking Nuvei (TSX: NVEI) as my final pick due to its solid financials and high growth prospects. The growth in the adoption of digital transactions has expanded the addressable market for the company. The company is launching new products, making new partnerships, and expanding its geographical footprint to drive its financials.
Bolstered by its growth prospects, Nuvei expects its topline to grow at 15-20% annually. Also, it hopes to increase its adjusted earnings before interest, tax, depreciation, and amortization margin to over 50% in the long run. The company trades at an attractive next 12-month price-to-earnings multiple of 13, making it an excellent buy.
